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Chapter 9

The Economy and Society

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‘It’s the Economy, Stupid’

Reminder on the wall of Bill Clinton’s office during the 1992 US presidential election campaign

Key Issues• How, and to what extent, does the economy

condition politics?

• What are the major economic systems in the world today? What are their respective strengths and weaknesses?

• What are the key economic and social cleavages in modern societies?

• To what extent do class, race and gender structure political life?

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• Politics is intertwined with the economy and with society.

• Voting behaviour and party systems are shaped largely by social divisions and cleavages.

• Parties compete for power by promising to increase economic growth, reduce inflation, tackle poverty, etc.

• President Clinton recognises that election results are often determined by the state of the economy: governments win elections when the economy booms, but are likely to be defeated during recessions or slumps.

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Economic Systems• An economic system is a form of

organisation through which goods and services are produced, distributed and exchanged.

• The central features that were usually associated with a capitalist economy were the following: • Commodity production, a good or service

for exchange• Productive wealth (means of production) in

private hands

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• Market principles: demand and supply• Material self-interest and profit maximisation are

the motivation for enterprise and hard work

• Socialist economies are based on the following principles:• Production for the satisfaction of human needs• Public or common ownership of productive

wealth• Planning, rational process of resource allocation• Cooperative effort for general well-being

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Capitalisms of the world

Three types of capitalist system can be

identified in the modern world:

• Enterprise capitalism

• Social capitalism

• Collective capitalism

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Enterprise Capitalism

• Enterprise capitalism is widely seen, particularly in the Anglo-American world, as ‘pure’ capitalism: other capitalisms are drawn from it.

• This model has been rejected in most parts of the world except for the USA.

• Its central feature is faith in the untrammelled workings of market competition, born out of the belief that the market is a self-regulating mechanism.

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• Enterprise capitalism has serious disadvantages: the most significant of these is a tendency towards wide material inequalities and social fragmentation.

• E.g., in the USA, absolute poverty, growth of poorly educated and welfare-dependent underclass.

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Social Capitalism• It refers to the form of capitalism that has

developed in much of central and western Europe. Germany is its natural home.

• The state intervention should be used to protect infant industries from the rigours of foreign competition. The central theme of this model is the idea of a social market: that is, an attempt to marry the disciplines of market competition with the need for social cohesion and solidarity.

• Further strain is imposed by the relatively high levels of social expenditure required to maintain high quality welfare provision. These push up taxes and so burden both employers and employees.

• Whereas the supporters of the social market insist that the social and the market are intrinsically linked, its critics argue that social capitalism is nothing more than a contradiction in terms.

• In their view, the price of financing ever-expanding social programmes is a decline in international competitiveness and a weakening of the wealth-creating base of the economy.

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Collective Capitalism• This model is based on the example of

post-1945 Japan. The East Asian ‘tigers’ have eagerly adopted.

• The distinctive character of collective capitalism is its emphasis on cooperative long-term relationships. This allows the economy to be directed not by an impersonal price mechanism, but through what have been called ‘relational markets’.

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• The firms themselves provide the social core of Japanese life. Workers are ‘members’ of firms in a way that does not occur in the USA or even social-market Europe. In return for their loyalty, commitment and hard work, workers have traditionally expected lifetime employment, pensions, social protection, and access to leisure and recreational opportunities.

• Particular stress is placed on teamwork and the building up of a collective identity, which is underpinned by relatively narrow income differentials between managers and workers.

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Varieties of Socialism

• Modern socialists have increasingly been prepared to accept that capitalism is the only reliable means of generating wealth. They have looked not to abolish capitalism, but to reform or ‘humanise’ it.

• Two very different models of socialist economy:• State Socialism• Market Socialism

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State socialism• This system was based on state

collectivisation, which brought all economic resources under the control of the party-state apparatus.

• The drawbacks of state socialism:• Inherent inefficiency. • Poor economic performance – social

safeguards built into central planning, with egalitarian system of distribution– enterprise efficiency not promoted or encouraged.

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Market Socialism

• The attraction of market socialism is that it appears to compensate for many of the most serious defects of central planning. Not only does a market environment provide a guarantee of consumer responsiveness and efficiency, but the dangers of bureaucratic power are also kept at bay.

• This is not to say that a socialist market is entirely unplanned and unregulated.

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Is There an Economic ‘Third Way’?• The idea of an economic ‘third way’ that

provides an alternative to both capitalism and socialism has attracted political thinkers from various traditions.

• The Swedish economic model (Keynesian social democracy) attempted to combine elements of both socialism and capitalism. Productive wealth was concentrated largely in private hands, but social justice was maintained through the most comprehensive welfare system and highest tax regime found anywhere in the world.

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Social Structure and Divisions

Individualism Collectivism A belief in the primacy of the individual over any social group or collective body, which suggests that the individual is central to any political theory or social explanation. ‘There is no such thing as society’ (Margaret Thatcher). This view is usually underpinned by the belief that human beings are naturally self-interested and largely self-reliant, owing nothing to society for their

talents and skills.

Stresses the capacity of human beings for collective action, highlighting their willingness and ability to achieve goals by working together rather than through self-striving. It draws from the belief that there is a social core to human nature, implying that social groups are meaningful political entities.

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Social Class• From Marxist tradition• Marxists regard class as the most fundamental, and

politically the most significant, social division. • Communist Manifesto (1848): ‘the history of all

hitherto existing societies is the history of class struggle’.

• This reflected his belief that politics, together with aspects of life such as the law, culture, the arts and religion, is part of a ‘superstructure’ that is determined or conditioned by the economic ‘base’.

22Workers of the world unite! (Communist Manifesto 1848)

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• A ‘ruling’ class of property owners (the bourgeoisie) dominates and exploits a class of wage slaves (the proletariat). This gave rise to a two-class model of industrial capitalism that emphasised conflict and progressive polarisation.

• ‘Underclass’: in its broadest sense it refers to those who suffer from multiple deprivation (unemployment or low pay, poor housing, inadequate education and so on) and are socially marginalised– ‘the excluded’.

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Egyptian Social Pyramid

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Race:

• Racial and ethnic divisions are a significant feature of many modern societies. (e.g., South Africa: Apartheid)

Gender:

• Social divisions based on gender or sex have traditionally attracted less attention than those rooted in, for example, social class.